Markets were totally calm. Then stocks fell off a cliff

At its worst, the Dow was off by 388 points, with all three major stock indexes sharply in the red. The drop in stocks followed a dip in Treasury bond yields, which move opposite to prices, and implied that investor appetite for safe haven bonds was high.

Still, investors scrambled to make sense of it. The dramatic selloff only lasted a short while and was followed by a swift rebound. The Dow was last down only 0.6%.

In recent days, investor confidence built up amid hopes that new cases of the virus were slowing down. But Thursday South Korea confirmed new cases of the virus, hammering home that the outbreak is not over.

The new cases "are leading to concerns that the global supply chain will be impacted in a material way," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, in emailed comments.

This could be seen in price action in tech and semiconductor stocks, which led losses in the S&P 500. Shares of Advanced Micro Devices, for example, were down 3%.

The tech-heavy Nasdaq Composite fell more than the most the major indexes, and remained 1% lower even has stocks rebounded.

While worries about the outbreak's fallout weighed on the technology sector, comments made by Federal Reserve Vice Chairman Richard Clarida didn't make things better.

Clarida told CNBC in an interview earlier Thursday he doesn't think the market expects an interest rate cut this year, although the CME FedWatch tool suggests otherwise. According to the data, market expectations are leaning towards another rate cut this summer this year.

Lower interest rates are good for stocks as they make it cheaper for companies to borrow money or refinance their debt.